Put Players Pile on Arena Pharmaceuticals (ARNA)

Arena Pharmaceuticals, Inc. (ARNA) was bombarded with unusually heavy put activity on Tuesday, with 4,346 of these bearishly oriented options crossing the tape—amounting to roughly 28 times the stock's expected put volume of just 155 contracts.

The day's most popular strike was ARNA's October 3 put, where 2,500 contracts crossed the tape. Several large blocks changed hands close to the ask price, suggesting they were purchased, and open interest on the October 3 put ballooned overnight by exactly 2,500 contracts. In other words, all of the day's volume at this strike consisted of newly opened positions.

Not far behind was ARNA's March 3 put, with 1,175 contracts trading on Tuesday. A block of 450 contracts changed hands at the ask price, sending implied volatility up 2.2% as a result, and suggesting that at least a portion of the day's activity consisted of freshly added pessimistic positions. Indeed, open interest at the March 3 put climbed overnight by 1,000 contracts.

Tuesday's put-skewed option activity was simply more of the same for ARNA, which has racked up a ten-day International Securities Exchange (ISE) put/call volume ratio of 2.35. This ratio ranks in the 90th annual percentile, indicating that traders have rarely snapped up bearish bets at a faster pace.

In the same pessimistic vein, short interest on ARNA rose by 7.3% during the most recent reporting period, and now accounts for 22.6% of the stock's float.

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Judging by yesterday's trend toward 3-strike puts, many speculators are banking on a pullback from ARNA during the short to intermediate term—the shares settled Tuesday at $3.23. However, following today's news that the Food and Drug Administration (FDA) has decided to approve ARNA's experimental obesity drug, the stock has rebounded nimbly from newfound support at its 20-day moving average.